How Do Interest Rates Affect a Home Loan?

Whoa. This is a biggy. Interest rates are rising slowly and that can affect how much home you can afford. John Duke and Tom Hallock with Bank of Texas Mortgage have teamed up once again to go over how rising interest rates can affect how much home you can purchase.

Just like Tom mentions in the video, for every 1% increase in interest rates, a person’s buying power drops by 11%. Check out the info in the graph below. If your maximum monthly payment is $2000, with rates at 4.5% a buyer can purchase a home at $495,000. However, if the interest rates increase to 5.5%, the maximum home loan would drop to $440,000. That’s a difference of $59,000!!!!

Even with interest rates a little higher than they have been over the past few years, we are still at record lows if you consider where rates have been. In the 70’s (as you can see in the chart below), interest rates were close to 17% or 18%. On February 7th, rates are at 4.4% which is still incredibly low. So, yes you may not be able to purchase a home for as much money with higher interest rates, but considering where the rates were 30+ years ago, they are still incredible!!! Don’t let a higher interest rate scare you away from purchasing a home.

All in all, there is a direct correlation between interest rates and a person’s buying power (how much house they can afford). Keep that in mind as you start the home buying process. If you have any questions, reach out to a lender for details. In fact, you can reach out to: